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QUARTERLY JOURNAL OF ECONOMICS
Vol. CXVIII February 2003 Issue 1
INCOME INEQUALITY IN THE UNITED STATES, 1913–1998* THOMAS PIKETTY
AND

EMMANUEL SAEZ

This paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the United States using individual tax returns data. Top income and wages shares display a U-shaped pattern over the century. Our series suggest that the large shocks that capital owners experienced during the Great Depression and World War II have had a permanent effect on top capital incomes. We argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks. Top wage shares were flat before World War II, dropped precipitously during the war, and did not start to recover before the late 1960s but are now higher than before World War II. As a result, the working rich have replaced the rentiers at the top of the income distribution.

I. INTRODUCTION According to Kuznets’ influential hypothesis, income inequality should follow an inverse-U shape along the development process, first rising with industrialization and then declining, as more and more workers join the high-productivity sectors of the economy [Kuznets 1955]. Today, the Kuznets curve is widely held to have doubled back on itself, especially in the United States, with the period of falling inequality observed during the first half
* We thank Anthony Atkinson, Lawrence Katz, and two anonymous referees for their very helpful and detailed comments. We have also benefited from comments and discussions with Daron Acemoglu, Philippe Aghion, Alberto Alesina, David Autor, Abhijit Banerjee, Francesco Caselli, Dora Costa, David Cutler, Esther Duflo, Daniel